13
European Integration (Subject) / Common Agricultural Policy (Lesson)
Advertisement
- CAP Massively complex, massively expensive policy Hard to understand without seeing how it developed CAP staarted as simple price support policy in 1962 EU was net importer of most food, so could support price via tariff- Technically known as a 'vaiable levy'
- Food tax and subsidy interpetation Price floor supported by tariff is like all-in-one package made up of simpler policy measures. (i) free trade in the presence of (ii) a consumption tax equal to T and (iii) a production subsidy equal to T Price, quantity, revenue and welfare effects are identical.
- Food tax and subsidy interpretation (continued) This is insightful: - makes plain that consumers are the ones who pay for a price floor enforced with a variable levy. - Part of what they pay goes to domestic farmers (area A), - part of it goes to the EU budget (area B),- part of it is wasted (areas C1 and C2). NOTE: benefit of price support goes particularly to large farms
- Changed circumstances and CAP problems The supply problem ‘Green’ revolution technology boom, supply rise - High guaranteed prices encourage investment & adoption. - Output rises much faster than consumption -The EU becomes a net exporter of agricultural goods
- Follow-on problems CAP cost from 8% of EU budget in 1965 to 80% of EU budget in 1969
- Follow-on problems (cont.) Storage issue: wheat, beef and butter mountains Dumping into international markets, and WTO rules Pollution and animal welfare Lagging income in farming and uneven benefit distribution meant a retreat from agriculture - E.g. about half of EU farmers get only 2.1% of payment
- Follow-on problems: World market impact Import protection insufficient for price support. CAP becomes major food buyer. - Some of this is dumped on world market. CAP protection and dumping depresses prices on world markets. - Harms non-EU food exporters.
- The new economic logic of the CAP Continuing lobbying power of farmers Lowering or eliminating price floors in line with compensation payments for farm owners Decoupling of payments from production
- CAP Reforms Supply control attempts: - 1980s supply ‘controls’ to discourage production.- Generally failed. 1992: MacSharry Reforms: - Cup prices and compensate farmers with direct payments.- Essential to complete the Uruguay Round. June 2003 Reforms: - Similar to MacSharry reforms in spirit.- Still not enough to allow Doha Round to finish.
- CAP Today Two pillar structure: - Direct payments and price support- Rural Development Planned spending of first and second pillar 2007-2013: increasing role of second pillar, especially in new member states
- Advertisement
- The first CAP Pillar Single Payment Scheme as backbone of the system - Based on historical payments in EU15- Money per hectare in new member states with amount limited by national ceilings Condition of compliance with environmental, food safety, animal welfare rules Exceptions and reforms in sugar, vegetable sector, wine sector
- The second CAP Pillar Funding shift: from direct payments to rural development Areas covered by second pillar: - Quality incentives and support to meet standards and covering of animal welfare cost, technical advice- Improving agricultural competitiveness, sustainable land management, improving quality of life in rural areas
- Remaining challenges Not all payments decoupled Continued industrial farming and pollution Larger landowners benefit most - E.g. publication of beneficiaries data by European Commission Farmers only get half of the support - Benefits input suppliers, agrichemical firms, landowners who are not farmers